Slush Funds

Infrastructure advocates, and often urban advocates along with them, today find themselves obsessed with their lack of resources. We spent a great deal of our wealth on single-life-cycle infrastructure and then borrowed the wealth of future generations to maintain it while building more. We’d like to have that money back – oh, we’d do so many things differently – but since we can’t unspend it, what we really need now is a new source of revenue.

Thank you to everyone in Wyoming we were able to meet and chat with last week as well as the Sonoran Institute for sponsoring the trip. What a fantastic opportunity. We’ll be recapping the week here soon as well as making a major announcement this Wednesday, so stay tuned.

The current incarnation of this delusion is the sales tax. In many places around the country, including here in Minneapolis/St. Paul, advocates for a different approach have fixated on this cash cow as the easiest path towards the money they want. Just a half cent on each dollar spent -- so the mantra goes – and we can build that world class transit system we always wanted (and we’ll even throw in some STROAD’s so we can get the Chamber of Commerce on board).

Of course, we used to have that world class transit system we’ve “always” wanted. We used our last great slush fund – the gas tax – to decommission it. If we look closely at how the gas tax has funded transportation, we’ll see the trajectory that funding transportation with the sales tax is most likely to take. History rhyming.

When we initially commissioned the gas tax, at the state and federal levels, there was plenty of money for everything. The tax was low and the returns were high. We built lots of new stuff that everyone (middle class and mobile) got to enjoy. It created all kinds of growth and opportunity fueling the prosperity of a generation.

That was early on. As infrastructure goes, roads don’t last real long and so, in short order, we were spending a lot of our gas tax money simply maintaining what we had already built. What fun is that? Delays due to lane closures added to congestion. While we were still building some new stuff, we were forced to do a lot of maintenance. And all of a sudden, increasing that gas tax wasn’t the painless exercise it once was.

Look, I’m already paying this tax and this tax is supposed to maintain the highways I drive. You are telling me we need more money? If I agree, the highway I drive is not likely to get fixed and, if it does, it is going to involve five years of congestion. I’m dissatisfied. And on top of that, I see every politician out there doing a pet project in their district – something really stupid they name after themselves – and I don’t want to fund that. Fix my road for the money I am spending.

These are legitimate observations, but so is the observation that the gas tax doesn’t pay even to maintain everything we’ve already built. It is hard to credibly argue that there is enough money in the system – there clearly isn’t if we are just to maintain what we have – but that doesn’t mean we should pump more in without asking some really tough questions. Primary among them: how did we get to a point where the demand for improvements exceeds our collective willingness to pay for them?

The answer is simple, and it is the key feature of every slush fund: the tragedy of the commons.

Now generally when people (particularly bloggers) bring up the famous tragedy of the commons it is an altruistic lament for us to all act as better people. If we could just agree to treat the commons differently – apply a better set of values – we would get better outcomes. (Note this is a very different argument than calling for the establishment of a new commons by using a dedicated sales tax for infrastructure).

The rational response to this problem is not creating another commons but in eliminating the false commons that we are abusing. We don’t need more slush funds. We don’t need to expand the slush funds we have. What we need is a system of funding infrastructure that correlates demand with a willingness to pay.

There are a couple of ways we can go about this. If we are going to retain the large, centralized systems we have, then the mileage tax would bring us closer to reality. For highway funding, I’ve advocated for replacing the gas tax with an access charge, one way to more closely correlate the relationship between land use and transportation demand. Toll roads and congestion pricing would also get us closer to reflecting the real cost.

People hate these approaches. Politicians hate these approaches. Why?

Simple: because people naturally want to consume more than they are willing to pay for and they are only too happy to use the power of centralized government to make that happen.

So what is another approach? We can localize these decisions. A slush fund where 300 million people contribute is a lot more of a commons than a slush fund where my block contributes. Or my neighborhood. There is a natural tempering mechanism that exists when we do things at the local level, with local funds. This doesn’t exactly help the GDP bean counters at the federal level, but what we lose in national growth we make up in community resiliency.

In Minnesota, we’ve recently given municipalities the authority to create utility districts. The idea here is to create another funding stream for cities to use to pay for sewer and water systems. This is local control, Chuck, so you must be for it, right?

Not at all, particularly when I see how they are set up. A city wide sewer district is, again, simply another slush fund, where wealth can be siphoned off of productive properties (generally the downtown and surrounding neighborhoods) and then used to subsidize the lifestyles of those who live on the edge of the community. Unless the district is going to have concentric rings where the charges increase as you get further out, or the charge is going to be based on the actual amount of pipe and the number of pumps required to serve your property (something not allowed through the district, but it could be done through the utility rate structure, which nobody does), then we’re just postponing the inevitable.

A sales tax for infrastructure might feel like a good idea. It promises lots of money and an easier path to getting the money than actually sitting down and working out the harder dilemma of paying for our lifestyle. Slush funds like these don’t actually solve problems, they simply postpone them and make them more difficult to resolve when they ultimately become unavoidable. We’re living in a crisis created by yesterday’s slush funds.

We need to localize the economic decisions we are making. Let cities experiment and develop approaches that work locally. No more one-size-fits-all. No more grand promises and slush funds. It’s time we deal honestly with ourselves and the complex set of problems we have created.